Monday, 21 July 2014

Bargaining of posted price selling

Abstract

Two popular selling methods — bargaining and posted-price selling — are compared here in a dynamic model. When bargaining costs no more than posted-price selling, we find that bargaining is always optimal. When bargaining costs more, however, bargaining is still preferred if and only if the common cost for both selling methods is large enough. We also find that an increase in the discount rate or the seller's bargaining power favors bargaining. Finally, we find that if the distribution becomes more dispersed and the increase in a buyer's valuation is sufficiently large, bargaining is more likely to be adopted.